Inflation remains at 3.8%: Experts respond

Inflation in the year to August remained at 3.8%, according to official figures, after food costs continued to rise.

The pace of price rises matched the inflation rate in July but as some costs such as airfares eased, food was more expensive with cheese, fish and vegetable prices all rising.

Food price inflation has risen for five months in a row as economists said supermarkets were passing on government increases in the minimum wage and National Insurance Contributions (NIC) to shoppers through higher prices.

Overall inflation remains above the Bank of England’s 2% target and expectations are growing that its rate-setting committee will hold interest rates on Thursday.

UK Inflation: Pressure persists on households and policymakers

Rob Morgan, Chief Investment Analyst at Charles Stanley

UK inflation remains stubbornly high, with August’s Consumer Prices Index (CPI) holding steady at 3.8%, in line with expectations.

While price rises are expected to ease in 2026, households continue to feel the squeeze, caught between elevated living costs and a cooling jobs market. With food prices up 5.1% year on year and housing costs up 7.4% the price of essentials has been escalating rapidly, making it very hard for people to escape the unwelcome resurgence.

For the Bank of England, sticky inflation presents a policy dilemma. It’s now clear the UK has a unique inflationary problem compared with other developed nations, partly thanks to high energy costs, and some Monetary Policy Committee (MPC) members remain concerned about second-round effects. This is where prolonged inflation above the 2% target risks embedding higher price expectations into consumer behaviour and business decisions, creating a self-fulfilling feedback loop.

Will the BoE cut rates again this year?

The inflation outlook has triggered a tug-of-war within Threadneedle Street. Some MPC members argue that signs of weakening demand and softening price pressures justify another rate cut before year-end — continuing the Bank’s “gradual and careful” easing cycle.

However, the persistence of elevated inflation complicates that narrative. With the September CPI print likely to remain well above target – potentially double – a majority of the committee may opt to hold rates steady at the November meeting. Meanwhile, GDP growth, though tepid at 1.4% year-on-year, hasn’t slowed enough to confirm a decisive disinflationary trend.

Some policymakers may also prefer to wait for greater clarity on the fiscal outlook from the upcoming Budget before committing to further easing. This implies no reduction until December at the earliest.

What will drive the inflation trajectory now?

The path of inflation now hinges a lot on services. While food, energy, and core goods inflation are probably reaching their peak, services could remain resilient as employment costs remain high, keeping overall CPI elevated even if other components stabilise. With wage growth still strong, inflationary pressures may continue to bubble to the surface and delay interest rate cuts until next year.

Relief for Bailey as signs of cooling inflation appear

“Inflation might still be running at almost double the BoE’s preferred level, but indications of a slowdown in price increases in both services and core inflation provide some hope that any second wave in CPI will be less extreme than the first. But the UK still faces much higher inflation than on the Continent, hampering growth right when the economy needs it most.”
 

Commenting on inflation remaining unchanged, Daniel Austin, CEO and co-founder at ASK Partners, said: “Today’s unchanged UK inflation to points to a bumpy and uncertain road ahead. Policymakers are caught between volatile global conditions, exacerbated by ongoing uncertainty, and shifting domestic policy. Markets still expect another rate cut before year-end, but with the Autumn Budget looming, the MPC is likely to hold fire until there’s clarity on the Chancellor’s fiscal plans. A premature move would be a leap of faith.

“For homeowners and buyers, the hope of lower borrowing costs lingers, yet persistently elevated fixed mortgage rates mean relief is not imminent. With inflation unlikely to return to the 2% target this year, mortgage pressures look set to persist. Investors and developers will also be watching closely. Resilient sectors such as co-living, build-to-rent and storage continue to attract capital thanks to tight supply and strong demand, but a stable downward inflation trend is critical to unlocking broader activity. Should the predicted BoE cuts arrive, they could act as a spark, but for now, only the most agile investors may find opportunities in a cooling market.”

Inflation: “we are still far from comfortable”

George Lagarias, Chief Economist at Forvis Mazars said:

Although inflation eased a bit by some metrics, we are still far from comfortable. Restaurants, hotels and motor fuel costs continue to rise substantially, and were really offset only by cheaper airfares. The numbers today may justify the Bank of England’s caution against slashing interest rates, but this is of little comfort to consumers, who have been experiencing stagflationary pressures for over a year. Businesses, especially in the services sector, are still trying to pass increased labour costs to consumers. We continue to believe that lower growth will eventually win out and supress prices eventually, but patience will be required.